India: Supreme Court Says No To Arbitration In Landlord-Tenancy Disputes

Last Updated: 31 January 2018
Article by Ajay Bhargava, Aseem Chaturvedi and Sharngan Aravindakshan

Most Read Contributor in India, August 2018

A Supreme Court (Court) bench consisting of the Hon'ble Justices R K Agarwal and Abhay Manohar Sapre recently reaffirmed the non-arbitrability of disputes relating to tenancy and eviction in Himangni Enterprises v Kamaljeet Singh Ahulwalia [(2017) 10 SCC 706].

Background

The appeal arose out of an order of the Delhi High Court (HC) upholding the lower court's decision in rejecting the application filed by the Appellant under Section 8 of the Arbitration & Conciliation Act, 1996 (Act) in a pending civil suit filed by the Respondent against the Appellant.

The Respondent's predecessor had entered into a lease deed dated 31 August 2010 with the Appellant for a period of 3 years with effect from 7 October 2010. The lease deed expired and thereafter no fresh deed was executed between the parties. Further, the Respondent filed a civil suit against the Appellant in the Saket District Court, New Delhi seeking the Appellant's eviction from the premises in question and claiming some unpaid arrears of rent and a grant of permanent injunction against the Appellant.

The Appellant, which was the Defendant in the aforesaid suit, filed an application under Section 8 of the Act contending that since the suit was founded on the lease deed dated 31 August 2010 which contained an arbitration clause for resolving disputes arising out of the lease deed, the parties were bound by the same and the suit had to be referred to arbitration.

The Respondent opposed the same by contending that the lease deed had already expired with no extension thereafter and hence the same was no longer enforceable by the Appellant. Further, the subject matter of the civil suit filed by the Respondent was not arbitrable.

The District Court vide order dated 11 April 2016 accepted the Respondent's contentions and rejected the application. The HC upheld the decision on appeal, giving rise to the present appeal before the Supreme Court.

Appellant's contentions

The Appellant argued that the disputes arose out of the lease deed dated 31 August 2010 and the resolution of the same would, in view of the same, be governed by the arbitration clause contained in the lease deed. Hence, the civil suit as filed by the Respondent was not maintainable.

Further, the Delhi Rent Act, 1995, was not applicable to the premises in question by virtue of Section 3(1)(c) of the same, and hence, the dispute was not solely within the purview of the civil court.

Respondent's contentions

The Respondent argued that matters of tenancy and eviction are not arbitrable and hence, the civil suit was maintainable and the orders of the HC and the lower court require no interference.

Held

The Court held that the question involved in the present appeal had already been resolved in its earlier decisions in Natraj Studios (P) Limited v Navrang Studios [1981 AIR 537] and Booz Allen & Hamilton Inc v SBI Home Finance Limited [(2011) 5 SCC 532] against the Appellant and in favour of the Respondent.

Natraj Studios was a similar matter where the landlord had filed a suit for eviction in the Small Causes Court, Bombay and the tenant had filed an application under Section 8 on the basis of the arbitration clause contained in the Leave and License Agreement between the parties. A 3 Judge Bench of the Court ruled that "by reason of Section 28 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 and by reason of the broader considerations of public policy mentioned by us...the Court of Small Causes alone has and the arbitrator has not the jurisdiction to decide the question whether the Respondent Licensor Landlord is entitled to take possession of the two studios..."

In Booz Allen & Hamilton a Division Bench of the Court ruled that "the well recognized examples of non arbitrable disputes are... eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes."

In view of the aforesaid decisions, the Court ruled that it was already established that tenant-landlord disputes were non arbitrable.

Further, the Court dismissed the Appellant's argument that the Delhi Rent Act, 1995, was not applicable to the present dispute by virtue of Section 3(1)(c) of the said Act and hence it could be referred to arbitration. The Court ruled that the mere preclusion of the Delhi Rent Act, 1995 from application did not mean that the Arbitration & Conciliation Act, 1996 would automatically apply to the present dispute. In such a situation, the rights of the parties would be governed by the Transfer of Property Act, 1882. Further, in the event the exemption in Section 3(1)(c) ceased to apply, the Act would become applicable to the premises.

In view of the aforesaid principles as well as its earlier decisions, the Court ruled that there was no merit in the appeal and dismissed the same.

Comment

By way of this decision, the Supreme Court has reinforced the catena of decisions that bar the arbitrability of landlord- tenant disputes on the grounds of involvement of rights in rem and public policy.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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